The IFS Is Saying We’re About At The Peak Of The Laffer Curve

It’s true that we might be there, we might not be, but this statement from the IFS is a claim that we are currently at about the peak of the Laffer Curve:

Labour will confirm in its manifesto tomorrow that it will introduce a 45p rate of income tax on those earning more than £80,000 and a 50p rate on those earning above £125,000.

The Institute for Fiscal Studies said that the proposals would cost an employee earning more than £100,000 an additional £1,000 in tax.

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As Scotland Is Finding Out – Higher Income Tax Rates Can Mean Less Income Tax Collected

The basic contention of the Laffer Curve is that a tax rate can be “too high”, meaning that a lower rate would collect more revenue. Note that the insistence isn’t that any lower rate will produce more revenue, but that there’s a curve and it’s possible to be beyond the peak of it. Laffer Effects are when we see the beginnings of this – some people not working so hard, leaving the country and so on, even perhaps not arriving in the taxing jurisdiction.…

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From Before Keynes – Tax Cuts Grow The Economy Even If Not Quite The Full Laffer Curve

An interesting paper looking at inter-war Britain, showing that tax cuts at the time did indeed grow the economy. No, this doesn’t proves that all tax cuts pay for themselves by bringing in greater revenue – that’s not the claim at all. Only that cutting taxes can indeed be stimulatory and lead to economic growth:

Positive effects of fiscal policy on economic growth: New evidence from the Great Depression in Britain
James Cloyne, Nicholas Dimsdale, Natacha Postel-Vinay 02 November 2018

The austerity, low interest rates, and sluggish growth in Britain between the two World Wars mirror today’s economic circumstances.…

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With Government, The Poison Is The Dose

Let’s look at the Rahn Curve.

It tells us that a government should ideally absorb a certain percentage of the GDP of its nation, because the bigger a country gets, the more governing is usually required.

And that’s pretty reasonable – if you have a million more people doing stuff (for example) you might need a thousand more police officers, right?

The Rahn Curve says that a government shouldn’t get too small – if it absorbs less than 15% of its nation’s GDP, it starts to become too small to keep order and the place peacefully ticking over.…

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